Talk of how to do business in China has dominated industry gatherings and earnings calls in recent months.
This story first appeared in the March 18, 2011 issue of WWD. Subscribe Today.
Beauty chief executives are increasingly voicing their concern over China’s stringent revisions to its Cosmetics Hygienic Management Rules, which the State Food and Drug Administration of China began formally implementing in April.
The regulations apply to all beauty companies that import products manufactured outside of China and also to any “special-use” products — namely, hair dyes, skin whiteners, sunscreen and antiaging products — manufactured in China.
Nearly one year after their introduction, beauty firms continue to work to untangle the rules, and struggle with how best to comply with them. The confusion has dramatically slowed the introduction of new products to China from outside beauty firms.
And the stakes for getting it right are huge. During the company’s presentation at the annual Consumer Analyst Group of New York conference, held late last month, Procter & Gamble Co. chief financial executive Jon Moeller cited a study released in November by the Boston Consulting Group that states over the next decade, China will add 270 million consumers to its middle income and affluent class. “This is roughly the same number as there are in the entire U.S. today,” said Moeller.
For P&G — the largest consumer products company in China, according to the firm — Greater China accounts for nearly $5 billion in sales, said Moeller.
During the same conference, Estée Lauder Cos. Inc. president and chief executive officer, Fabrizio Freda, said this year he expects China will likely grow to become the company’s fourth largest global market. He also nodded to the influx of Chinese globe trotters.
“[There are] 40 million Chinese traveling this year; in the next year it probably will go up to 90 million,” he said. “The stronger you are in China Mainland, the more you benefit from the increase of Chinese traveling around the world. So that’s priority number one.”
Executives said the growth potential of the Chinese market makes navigating the new wave of regulation paramount.
During Lauder’s earnings call in February, Freda said, “In China, we are making progress on the registration front because with a lot of work and a lot of diligent amount of research, we are able to respond to the new requirement for registration of existing products.”
He added, “In terms of the ability to register new ingredients in China, for the moment the industry has not been really reopened to the right process. So we are actively working on this and we hope that in the short [term] this will be reopened.” After the call, Freda told WWD, “We are better understanding what they need.”
At the Personal Care Products Council Annual Meeting earlier this month, Francine Lamoriello, the organization’s executive vice president of global strategies, said China will continue to be a major issue for the council. PCPC continues to work with Chinese officials, encouraging them to provide technical guidance on how firms should interpret the regulations.
The lack of overall global regulatory consistency presents a challenge for beauty firms.
Elizabeth Arden Inc. chairman, president and ceo E. Scott Beattie, said, “It’s to be expected that, as China evolves as an economy, it wants to establish good, strong standards, but we have standards all around the world. They’re just not harmonized properly,” he said. “That’s a big opportunity for us as an industry. It would improve the global efficiency of all companies.”